Case Study

City of Westfield, Indiana

Mesirow Financial ("Mesirow") structured and arranged CTL construction-permanent financing in the amount of $26,650,000 for a build-to-suit indoor athletic facility located in and leased to the City of Westfield, Indiana (the "City"). In addition to the financing, Mesirow also arranged (through its Insurance department) a surety bond, which was the critical component of the construction risk mitigant package enabling the private sector developer to finance the project on a construction permanent financing basis.

Overview
The City engaged in a public-private partnership (P3) with a local developer to deliver a +/-378,000 square foot indoor athletic facility. The facility will be located within the existing Grand Park sports complex, one of the largest sports complexes of its kind, housing 26 baseball diamonds and 31 multipurpose fields. The indoor facility will contain three indoor soccer/multi-purpose fields, which will allow the City to accommodate year-round activity.

Instead of owning and financing the project directly, the City decided it would be more efficient, from both a timing and financial perspective, to tap the expertise of private sector participants to design, build and finance the project from the proceeds generated from a 25-year credit tenant lease between the City and the developer.

Transaction Highlights

1. Leverage: The financing represented 100% of total project costs.

2. Construction Risk/Surety Bond: Mesirow secured the necessary Surety Bond on behalf of the developer and contractor.

3. Equity Requirement: In order to fulfill the investor’s equity requirement (during construction only) Mesirow successfully negotiated a level of subordinated development and contractor fees, thereby lessening the need for developer cash equity.

4. Lease: Mesirow worked closely with the City, its counsel and bond counsel throughout the lease negotiation period in an effort to secure a marketable, legally compliant and enforceable lease.

5. Purchase Option: The City was integrally involved in not only the lease negotiations, but also the financing structure, specifically in connection with the tenant’s purchase option rights as the provision provided for a loan assumption.

The market has seen a recent increase in these and other similar types of public-private partnership projects. The P3 structure has proven to be an efficient means of providing much-needed capital development projects that might otherwise be stalled or prohibited for various reasons. The P3 structure is also deemed favorable as it creates private sector involvement in the design and build work as well as ongoing facility management and maintenance responsibilities.

The P3 structure described above proved to be an excellent fit for CTL application, as it allowed the developer to overcome the risks and struggles it would have encountered when trying to procure traditional real estate financing on an unconventional asset. Due to the strong credit rating of the City, and a well-documented lease/transaction structure, all parties enjoyed the benefit of a high-leverage, 100% of cost, competitively priced debt package.